Mining is mostly done in PoW-based blockchains, but as discussed earlier, PoW is not the only consensus system that is in use; there are various other consensus mechanisms as well. Proof of Work, however, is the most widely used consensus system used in cryptocurrencies.

The concept of PoW existed long before its use in Bitcoin. These systems were used previously to restrain denial-of-service attacks, spams, and other networking-related issues that currently persist in the system since they require proof of computational work from the requester before delivering the required service. This makes such networking-related attacks infeasible.

For PoW systems to be cost-effective enough, the computational task is moderately difficult to perform by the service requester but easy to check by the service provider. Hashcash is one of the systems that first started using PoW-based protocols utilizing the SHA-256 algorithm. With it, users had to submit the proof of calculating thousands of hashing operations before providing them the required service; this, in turn, limited DoS and spam attacks.

Bitcoin also uses the SHA-256 hashing algorithm, although it is a random algorithm, and is deterministic in nature, which means for any given input the output will always be the same and can be easily verified by anyone using the same algorithm and the same input.

In cryptocurrency mining, the miner needs two things to get the input for the SHA-256 hashing algorithm:

• Header of the newly generated block
• Nonce

The miner uses the brute force method until the hash output matches the difficulty target; it is a 256-bit number that serves as an upper limit, and the SHA-256 output must be lower than or equal to the current difficulty target for the block so that it can be accepted by the network. For example, this is the hash of a block at height 528499 of a Bitcoin blockchain:

00000000000000000021524523382d300c985b91d0a895e7c73ec9d440899946

The first transaction in every block is the mining reward, hence it does not have the input address from which funds are to be deducted in the transaction, these are the coins that are created to be a part of the blockchain network. This unique type of transaction is known as a coinbase transaction. Also, in a Bitcoin blockchain, the coins created in the coinbase transaction cannot be spent until it receives at least 100 confirmations in the blockchain. Since the block time is 10 mins, 100 transactions would roughly take 16 hours and 40 minutes. The coinbase transaction can happen on the miner's own address only.